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  <h1>Regulations</h1>

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Regulators are always trying to protect policyholders!
<br>
They are concerned with
<ul>
  <li>
    Adequate information being delivered
  </li>
  <li>
    Advisors being biased between products depending on commission levels.
  </li>
  <li>
    They are concerned with any terms that can cause disputions. e.g. low surrender benefit / waiting (moratorium) period
    /Some benefits not being paid / pay more than sum assured
  </li>
  <li>
    PRE may not be satisfied. e.g. Is inflation taken into account?
  </li>
</ul>
What can be done
<ul>
  <li>
    The sales process should note ... / and highlight
  </li>
  <li>
    The regulator could ban commission on all whole of life products.
  </li>
  <li>
    The regulatory could insist on the disclosure of commission levels for the various
    products on which it advises
  </li>
  <li>
    The regulator could insist on periodic reviews of advice given, and fine / discipline advisors who are
    found to give incorrect advice.
  </li>
  <li>
    Impose a maximum waiting period, or insist on a return of premiums should a claim occur
  </li>
  <li>
    insist on the payment of benefit if the cause is an accident
  </li>
  <li>
    insist on a cut-off age above which premiums cease to aviod overpayment
  </li>
  <li>
    insist on premiums being capped
  </li>
  <li>
    insist the sales process / literature makes clear that ...is not guaranteed.
  </li>
  <li>
    insist in options being offered
  </li>
</ul>
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    Aim of regulations
    <div id="content">
      <ul>
        <li>
          To correct perceived market inefficiencies
        </li>
        <li>
          To promote efficient and orderly markets
        </li>
        <li>
          To protect consumers of financial products
        </li>
        <li>
          To maintain confidence in the financial systems
        </li>
        <li>
          To help reduce financial crime
        </li>
      </ul>
    </div>
  </div>

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    Cost of regulations
    <div id="content">
      Direct costs
      <ul>
        <li>
          Administering the regulation
        </li>
        <li>
          Compliance of the regulated firms
        </li>
      </ul>
      Indirect costs
      <ul>
        <li>
          An alteration in the behaviour of consumers, who may be given a false sense
          of security and a reduced sense of responsibility for their own actions.
        </li>
        <li>
          An undermining of the sense of professional responsibility amongst intermediaries
          and advisors.
        </li>
        <li>
          A reduction in consumer protection mechanisms developed by the market itself.
        </li>
        <li>
          Reduced product innovation
        </li>
        <li>
          Reduced competition.
        </li>
      </ul>
    </div>
  </div>


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    Functions of a regulator
    <div id="content">
      <ul>
        <li>
          Influencing and reviewing government policy
        </li>
        <li>
          Vetting and registration of firms and individuals authorised to conduct certain types of business
          e.g. Before being able to give pensions advice it maybe a requirement that the salesperson
          must attend courses to get the qualification.
          And the qualification will be taken away if they are found giving inappropriate advice.
        </li>
        <li>
          Enforcing regulations, investigating suspected breaches and imposing sanctions.
          There will need to be a framework put in place that details both how the regulations will be tested
          and penalties will be enforced if the organization fail to comply.
        </li>
        <li>
          Providing information to consumers and the public.
          <ul>
            <li>
              The regulator either directly or through the state can issue guidance on the various financial products
              available.
            </li>
            <li>
              The regulators an force the financial institutions to supply the information.
            </li>
          </ul>
        </li>
      </ul>
    </div>
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    Regulation serves two purposes
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      <ul>
        <li>
          Information asymmetry
          <ul>
            <li>
              If a product/terminologies used is too complex to be understood by average people,
              it would be better to be directly regulated by the regulatory body, instead of trying to
              educate people what to do.
            </li>
            <li>
              Awarding products certificates if they reach certain standards on such features as charges.
            </li>
          </ul>
        </li>
        <li>
          Maintain confidence
          <ul>
            <li>
              Capital (In)Adequacy
            </li>
            <li>
              Compensation schemes
            </li>
            <li>
              Regulations for security markets
            </li>
          </ul>
        </li>
      </ul>
    </div>
  </div>

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    Types of regulatory regime
    <div id="content">
      <ul>
        <li>
          Prescriptive
          <ul>
            <li>
              If we have prescriptive regulation then this will contain the higher levels
              of regulation as actions that must be followed or are prohibited will be detailed
              fully and must be obeyed.
            </li>
          </ul>
        </li>
        <li>
          Freedom of action
          <ul>
            <li>
              Regulation where individuals and providers are allowed to take the actions that they
              see as most fitting.
            </li>
          </ul>
        </li>
        <li>
          Outcome based
          <ul>
            <li>
              This is because although the way that the benefit provider needs to act
              is not fully prescribed there are certain regulations that must be met about the
              outcome of individual decisions.
            </li>
          </ul>
        </li>
        <li>
          Unregulated markets
          <br>
          Regulations are not suitable when
          <ul>
            <li>
              The price of the product has already been low. The cost of regulation may
              mean that this product will not be profitable.
            </li>
            <li>
              Certain markets where only professionals operate should be unregulated as well,
              as these professionals should understand the risk that they are being exposed to
              and should therefore be able to make decisions based on available information and not
              have to face the costs of regulation.
            </li>
          </ul>
        </li>
        <li>
          Voluntary codes of conduct
          <ul>
            <li>
              There are guidelines to how companies or individuals operating in the market
              should behave
            </li>
            <li>
              There are no actual official regulations to be met so costs are kept down.
            </li>
          </ul>
        </li>
        <li>
          Self-Regulation
          <ul>
            <li>
              Voluntary codes of conduct is enforced by the participants in the industry rather than an outside
              body of a regulator.
            </li>
            <li>
              It is perceived as too weak because of the flexibility, and being in the interest
              of the providers rather than the individuals.
            </li>
            <li>
              It may be used by the established players in the industry to stop new entrants.
            </li>
          </ul>
        </li>
        <li>
          Statutory Regulation
          <ul>
            <li>
              Under this method the State will appoint regulators and issue the rules
              that must be followed.
            </li>
            <li>
              Firstly, the costs of this type of regulation are the highest although there is
              an argument that possible economies of scale can occur if similar types of regulation are
              carried out over a number of different industries.
            </li>
            <li>
              The second argument is that the regime can be too inflexible as outside regulators may not
              fully understand all the risks and so increase costs to minimise what are already small risks.
            </li>
          </ul>
        </li>
        <li>
          Mixed regimes
          <ul>
            <li>
              Because self-regulation and statutory regulation both have benefits, a mixed regime
              hoping to combine the best elements of each is often adopted.
            </li>
          </ul>
        </li>
      </ul>
    </div>
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  <p> Author: Mengke, Lyu</p>

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